States use work sharing to limit layoffs

UNEMPLOYMENT

Some states are adding a new twist to the old concept of unemployment insurance: paying to keep Americans in their jobs rather than giving them cash when they lose them.

Washington state has subsidized incomes for dental technicians and plumbers, while Rhode Island paid factory and health care workers when their employers couldn't. Almost 460,000 jobs have been saved through such arrangements since 2008, the Labor Department estimates, and federal funding approved last year has more states signing on.

Instead of dismissal notices, employees get a shortened workweek, with unemployment benefits partially compensating for lost wages. Popularly known as work sharing, the program holds out the promise of fewer layoffs and less painful economic downturns. For businesses, which get to retain experienced workers, it could mean the difference between success and failure.

"It's been a godsend," said Belinda Roberts, co-owner of Blue Crown Dental Arts in Kennewick, Wash., which credits the state's program with saving the jobs of seven trained technicians. The dental lab signed on to work share in 2010 after orders dropped and now has seven employees on the program. "It's kept the doors open."

Work share, also known as layoff aversion or short-time compensation, is part of a broad rethinking of the U.S. safety net for the unemployed. It borrows from decades-old efforts in Japan and Europe, notably Germany's Kurzarbeit, which dates from the 1920s. In 2009, about 3 percent of all German workers were on the program, which saved around 235,000 full-time jobs that year, according to a 2011 report from the Organization for Economic Cooperation and Development.

Work sharing

California pioneered the modern work-sharing concept in the U.S. in 1978. Along with Rhode Island, it is among 17 states that have had work-share programs in place for years. Before the recession began in December 2007, they weren't used widely, in part because states did little to publicize their availability. Even at the program's peak usage in 2009, work share accounted for only 2 percent of unemployment insurance benefits, according to the Congressional Research Service.

Now chronic long-term unemployment and a pot of federal funding approved by Congress last year have prompted more states to adopt work sharing. Twenty-five states and Washington, D.C., now have versions of the programs. Eleven jurisdictions have collected $92.3 million in U.S. aid so far. West Virginia and Ohio are among states considering plans.

In December, 4.8 million Americans were out of work for six months or more, according to figures from the Labor Department. While down from a record 6.7 million in April 2010, the level still surpasses any peak reached in the aftermath of previous recessions. More than a million people have abandoned the job hunt altogether, a development that Federal Reserve Chairman Ben S. Bernanke has called a "national crisis."

'Enormous waste'

"The conditions now prevailing in the job market represent an enormous waste of human and economic potential," Bernanke said in December. That month, the percentage of the jobless who were without work 27 weeks or longer fell below 40 percent for the first time since November 2009.

All sides bear some of the cost. State unemployment trust funds, with aid from the U.S. Labor Department, finance the work sharing. Affected employees get only a portion of their lost wages. Participating businesses must agree to pay workers a minimum number of hours a week and run the risk of higher unemployment insurance taxes if they use the program long term.

This month, Michigan will be the first state to give businesses a free trial: Companies can use work sharing with no risk of tax penalty as long as federal money is available. As with traditional unemployment, states cap the benefits workers can receive.

No panacea

"It's a good way in the short run to reduce the number of layoffs in the economy," said Wayne Vroman, a senior fellow at the Urban Institute, a Washington policy group. "It's not a complete panacea," he said. "Very often when people are put on shortened hours, the expectation of the employer at the time is they'll go back to full production. Sometimes that doesn't happen."

Traditional unemployment insurance stabilizes households and communities during short-term downturns, said Charles Fogarty, director of Rhode Island's department of labor training in Cranston. Keeping workers on the job, especially in a new era of chronic long-term unemployment, also has broader societal and economic benefits of maintaining connections to the work force, he said.

"It's an economic tool," Fogarty said. "Training an employee is a very expensive and time-consuming proposition. If you can minimize that, and keep that trained workforce you already have, it puts you in a much more competitive position economically."

Use caution

While work share can be useful, policymakers and businesses need to proceed with caution, said Douglas Holmes, president of UWC-Strategic Services on Unemployment & Workers' Compensation, a Washington business group that lobbies on unemployment insurance issues. The programs could drain already stressed unemployment insurance funds and, if used inappropriately, could delay inevitable economic disruptions, he said.

"If an individual continues to do the same job because this policy permits them to, when they would be better off spending time improving their skills doing the next job, that's a factor that has to be taken into consideration," Holmes said. "That turns the program from being a temporary measure to address a fluctuation in demand into one that becomes a long-term wage subsidy."